Chapter 13 International Transactions and Financial Markets.pptVIP

Banking regulations differ between countries, regulatory asymmetry Banks may establish international branches to allow them to engage in activities prohibited in their domestic market This may be done by establishing an agency abroad, a subsidiary office abroad, or branch bank abroad Regulations imposed by the foreign country often determine which arrangement is chosen PARTICIPANTS IN THE INTERNATIONAL FINANCIAL MARKETS Corporations Raise capital to finance business expansion It may be advantageous to offer equity of bonds in foreign markets due to permitting interest and exchange rates The domestic capital market may not exist or may be too small to support the issue of new bonds PARTICIPANTS IN THE INTERNATIONAL FINANCIAL MARKETS Nonbank Financial Institutions Investment and insurance companies: the most important ones Investment companies: use international diversification and pooling for clients’ assets via ownership of foreign equity Help clients purchase global assets Provide international mutual funds Insurance co. usually in long term market PARTICIPANTS IN THE INTERNATIONAL FINANCIAL MARKETS Insurance companies are less obvious, but they often have large amounts of long-term capital to manage Most will invest some of the assets outside the home country to improve their rate of return PARTICIPANTS IN THE INTERNATIONAL FINANCIAL MARKETS Speculators Speculators are individual traders, financial institutions or non-financial businesses that buy and sell foreign exchange in order to make a short-run trading profit: Scalpers (small \frequent profits) Day traders(longer period traders) The returns and risk are high Liquidity: the property associated with being able to buy or sell something easily Speculators facilitate market liquidity PARTICIPANTS IN THE INTERNATIONAL FINANCIAL MARKETS Participants in International Financial Markets Corporations Non Financial Institutions: Investment Companies and Insurance Companies Speculators: Scalpers Day traders Liquidity: